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🏦❗️Cable FX Macro Weekly Note: ECB March Rate Decision

**As seen in Risk In The Week report 03/02/24, subscribe at

The January ECB monetary policy meeting saw rates holding steady at 4.5%, in line with market expectations. We have recently seen swaps pare back 2024 easing bets, Lagarde had previously mentioned that too optimistic markets do not help the ECB win the inflation fight. During the press conference, Lagarde stood by its Summer forecast for the first ECB rate cut. The central bank staff projections now see inflation coming back to target by 2026 as prices are expected to rise by 1.9%. On the growth front, the ECB sees this year's output subdued at 0.8% and the next at 1.5%. More recently, activity data has widened its divergence as February services PMI for the euro area rose to 50.0 from 48.8 while the manufacturing print eased to 46.1 from 47.0. On a separate note, recent softness in euro area producer prices left a Bloomberg Economics EU HICP nowcast model below 2.0% for March, if the projection is materialized, the chances of an earlier-than-expected ECB rate cut could come back to the table. The desk at Deutsche Bank disagrees, analysts warned that sticky services inflation could push the ECB rate cut debate until after Summer, their base case scenario is June. Deutsche Bank has recently pushed back its call for the start of the ECB easing cycle, they pencil a total easing of 200bps over the next 18 months. Strategists at Morgan Stanley stand in line with a June rate cut call and warned that the focus will lie on changes in the staff macroeconomic projections. Morgan Stanley will be listening to the presser for clues on the timing and size of future rate cuts.



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